Dr Mark Kaplan and Others v Super PCS LLP (formerly Chancery (UK) LLP) and Others
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Rose |
| Judgment Date | 18 May 2017 |
| Neutral Citation | [2017] EWHC 1165 (Ch) |
| Docket Number | Case No: HC-2014-002026 |
| Court | Chancery Division |
| Date | 18 May 2017 |
[2017] EWHC 1165 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Rose
Case No: HC-2014-002026
Nigel Jones QC (instructed by Bankside Commercial Solicitors) for the Claimants
Jack Steer (instructed by David Downton & Company) for the Second Defendant
Patrick Green QC and Kathleen Donnelly (instructed through the Bar Public Access Scheme) for the Third and Eleventh Defendants
Heather Rogers QC (instructed by Simons Muirhead and Burton LLP) for the Fifth and Seventh Defendants, and Fourth and Eighth Defendants (costs only)
Hearing date: 3rd May 2017
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
There were three applications dealt with at the hearing on 3 May 2017. The first was the Claimants' application to amend their Particulars of Claim. That application was issued on 10 July 2015. The Claimants are represented by Nigel Jones QC. The second was an application by the 5th and 7th Defendants, PFFL and Mr Tim Smith, to strike out the claim in its entirety on the grounds that the Particulars of Claim disclose no reasonable cause of action against it. That application was issued on 7 August 2015 and was originally brought also by the 4th and 8th Defendants Prescience Media Ltd and Paul Brett. However the 4th and 8th Defendants are no longer being pursued by the Claimants and have dropped out of the proceedings except for the purposes of any decision regarding costs. PFFL and Mr Smith are represented by Heather Rogers QC. The third application was issued by the 3rd Defendant Peter Nichols and was made on behalf of himself and of the 11th Defendant Colin French. That application was issued on 25 April 2017 and seeks to strike out the claim form and the Particulars of Claim in their entirety on the grounds that the statements of case are an abuse of the court's process or are otherwise likely to obstruct the just disposal of proceedings (CPR r 3.4(2)(b)) and/or that there has been a failure to comply with a rule, practice direction or court order (CPR r 3.4(2)(c)). Mr Peter Nichols and Mr French are represented by Patrick Green QC and Kathleen Donnelly. The 2nd Defendant Mr Mark Nichols takes a neutral position on these applications and was represented before me by Jack Steer of Counsel.
On the morning of the hearing Peter Nichols emailed the Claimants' instructing solicitors to say he had been declared bankrupt on 10 April 2017. I was told that his trustee in bankruptcy had been appointed the day before the hearing. I raised with counsel whether the trustee consented not only to Mr Nichols opposing the Claimants' application to amend but also to him proceeding with the strike out application, given that the risk of an adverse costs order is different for those two positions. After taking instructions Mr Green informed me that the trustee was content for Mr Nichols to continue to oppose the amendment application. However, she wanted to take legal advice before consenting to him pursuing the strike out. In the event Mr Green made his submissions on behalf of Mr French who was present in court and was content for Mr Nichols' strike out application to be pursued on his behalf.
The claim brought by the five Claimants as presently pleaded is a claim in deceit. The Claimants were all investors in a company called Prescience Media 4 LLP ("PM4") which is a vehicle through which members can invest their money in the production and distribution of films for the cinema. They became members of PM4 with the dual purpose of profiting should the films prove a success and if they do not, of mitigating their losses through sideways tax relief.
Very broadly, the Claimants allege that all the Defendants were in some way or another involved in the promotion and operation of PM4 and that they induced the Claimants to invest their money by making false representations as to various matters. The alleged dishonest representations include for example that the scheme was a low-risk investment; that it was likely to make substantial profits; and that it had either been approved by HMRC as an effective tax avoidance scheme or at least that would not be challenged by HMRC. The Claimants also allege that they were misled as to how much money would be invested in the scheme on their behalf. They were told that what was referred to in the investment agreement as the Total Contribution to the scheme for each member would be, say, £1 million of which they would provide cash of only £250,000. The other £750,000 would be provided by a loan to the member. The Claimants say that they thought that the whole £1 million would be invested in the scheme but in fact only the cash part was. The significance of this is that the fees charged by the scheme operators were very substantial. If those fees are deducted from the cash contribution, that meant that only quite a small sum would actually be invested. A film would need to be spectacularly successful for it to earn profits for the members of the scheme which over topped the fees that they had paid and gave them some return on their investment.
The false statements on which the Claimants rely are alleged to have been made to the Claimants in two ways. Some representations are said to have been made in the written Business Proposal that was given to each of the Claimants before they invested. Other representations are alleged to have been made orally by one or more of the Defendants at meetings and in conversations in 2008 and early 2009.
There is at present no defence pleaded to the claims. However the Defendants made clear at the hearing that they strenuously deny the claims made against them.
The amendments for which the Claimants seek permission fall into two categories. The first category is made up of amendments intended to expand or clarify the deceit claim by setting out more detail of who is alleged to have said what to whom and when. The second category is the introduction of a new claim based on an alleged breach of the Financial Services and Markets Act 2000 (' FSMA'). The allegation underlying this claim is that the PM4 scheme constituted a collective investment scheme for the purposes of FSMA. The claim as set out in the draft of the amended Particulars attached to the application is brought under FSMA against the 1st Defendant, Chancery (UK) LLP, on the basis that it is an authorised person under FSMA but that it promoted the scheme in breach of applicable regulatory rules. A claim under FSMA is brought against PFFL on the basis that it is not an authorised person under FSMA. It is alleged that PFFL's involvement in establishing and operating the scheme was in contravention of the general prohibition in section 19 of FSMA. The Claimants therefore rely as against PFFL on the cause of action provided by section 26(2) of FSMA to recover the money transferred under the agreement and compensation for any loss suffered as a consequence of transferring that money.
At the hearing before me, Mr Jones said that as it now appears that Chancery (UK) LLP is insolvent, the Claimants are no longer pursuing any relief against that company. The FSMA claim is now limited to the claim for relief against PFFL.
The fact that the Claimants' application to amend the Particulars of Claim was issued on 10 July 2015 but is only being heard on 3 May 2017 calls for some explanation. The chronology is as follows.
a) The claim form was issued in August 2014 and served on 11 December 2014.
b) The action was then stayed for four months to allow the Defendants an appropriate opportunity to consider the matters raised in the claim.
c) In March 2015 the solicitors for some of the Defendants asked for clarification of some aspects of the claim.
d) On 18 May 2015 the Claimants produced a draft amended Particulars of Claim. At that stage the main amendments were to abandon a negligence claim originally pleaded against the Defendants and to add in a claim under FSMA against all the Defendants. The Defendants criticise the Claimants because even though some of the litigants were at that point litigants in person, they were invited by the Claimants' solicitors to agree to amendments introducing a new FSMA claim without being alerted to the fact that the amendment would be introducing the new claim outside the primary limitation period. So it was not pointed out to the Defendants that the claim could only be included in the statement of case if it fell within CPR 17.4.
e) After some correspondence it became clear that the Defendants would not consent to the proposed amendments and on 10 July 2015 the Claimants issued an application for permission to amend.
f) On 7 August 2015 PFFL and Mr Smith applied to strike out the claim. The hearing of both the amendment and the strike out applications was fixed for 5 October 2015.
g) A new draft amended Particulars of Claim were served by the Claimants on 22 September. On 25 September 2015 shortly before the hearing of the application, a further draft was substituted as the Claimants said that the 22 September draft was served in error. The Defendants complain that the successive drafts did not make clear what had changed since the draft in May.
h) At the door...
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